Why It Matters

Much value in hotel brands

News last week of AccorHotels' proposed acquisition of FRHI Holdings, which holds top-tier brands Raffles, Fairmont and Swissotel, created waves in the industry, coming soon after hotel giant Marriott International agreed to buy Starwood Hotels & Resorts Worldwide.

In Singapore, this means the Paris-based hotel operator will soon be managing the likes of the iconic Raffles Hotel as well as Swissotel The Stamford and Fairmont Singapore when the deal closes, which is expected to be some time next year.

There was some confusion last week, with several local media and wire reports referring to trophy assets and property acquisitions, but ownership of the hotels does not change.

Raffles Hotel, which has a special place in Singapore's history, will still be owned by an affiliate of Qatar Investment Authority (QIA), Katara Hospitality. QIA is a leading global investor in the hospitality industry, with investments in iconic hotels and hospitality management companies.

The other two Singapore hotels involved in the deal are still owned by CapitaLand Commercial Trust and CapitaLand Mall Trust.

But what the multibillion-dollar deal shows is that there is significant value in the ownership of brands and not just real estate.

It also points to how important scale is in an industry that has seen online travel agents eating into hotel operators' revenue, and online platforms like Airbnb competing for customers.

AccorHotels, Europe's largest hotel operator, largely known for its Sofitel brand, will now gain some of the most premium brands to rival the likes of Four Seasons and Ritz-Carlton.

Acquiring brands without having to buy the real estate associated with them allows the group to invest more efficiently in marketing and operations. A larger portfolio enables AccorHotels to negotiate better terms with suppliers, especially for bulk purchases. AccorHotels can also offer a choice of more hotels to those in its loyalty programme.

This means that for the three Singapore hotels involved, this deal will be a plus.

A version of this article appeared in the print edition of The Straits Times on December 14, 2015, with the headline 'Much value in hotel brands'. Subscribe